Ray Dalio Hedging Bets to Counter the Unknown of Coronavirus

(Bloomberg) -- Ray Dalio says he doesn’t know much when it comes to pandemics.

So when considering the market impact of the coronavirus outbreak, the billionaire founder of hedge fund Bridgewater Associates plans to play safe and hedge his bets.

“When you don’t know, the best investment strategy is to be smartly diversified across geographic locations, across asset classes, and across currencies,” he wrote in a daily note to clients on Jan. 28.

As manager of the world’s biggest hedge fund, Dalio’s thoughts are worth listening to. Bridgewater has made $58.5 billion for its clients since its beginning in 1975, the most by any hedge fund, according to estimates by LCH Investments, although last year its main fund suffered its first loss since 2000.

The coronavirus outbreak has triggered what Dalio describes as “flight-to-quality market action,” with equities selling off globally, while bonds, gold and the dollar versus the yuan have rallied. Being able to understand how investors are reacting will be key, he says.

“We want to pay attention to what’s actually happening, what people believe is happening that is reflected in pricing (relative to what’s likely), and what indicators that will indicate the reversal,” Dalio wrote.

JPMorgan Chase & Co. strategists say the turmoil in global equities brought about by the coronavirus outbreak could end up a buying opportunity. The sell-off in stocks could continue before the situation improves, but in the past such major outbreaks only led to a drop in share values of about 4.7% on average, they noted. The S&P 500 Index has fallen 2% since hitting a closing record on Jan. 17.

In a note documenting major pandemics dating back a century, Dalio said that no one has any clue on where and to what extent the coronavirus will spread and how will it impact economies and markets. He went on to discuss the economic impact of the Spanish flu that rocked the world in the early 20th century and killed more people than World War I.

To contact the reporters on this story: William Canny in Amsterdam at wcanny3@bloomberg.net;Nishant Kumar in London at nkumar173@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Paul Jarvis

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